Missing from the Manifestoes

Dec 02, 2019

The Sunday Business Post, 1 December 2019, Britain, as the Brexit process constantly reminded us, is our largest trading partner.  It is also a major competitor.

 

The prospect of Brexit, particularly a crash out hard Brexit rightly put the frighteners on everybody, so much so that our own Minister for Finance could push a Budget through the Dáil with almost no tax benefits for everyone (other than the self-employed) and scarcely a murmur of dissent.

 

Brexit or not, the British will have a new government after December next.  It will be new either in political hue, or new in the sense that it will be another Tory government operating from a different manifesto.  Now that the manifestoes of the two main parties, Conservative and Labour, have been published, what could change in the competitive environment between our two countries?

 

Cross-border trade is heavily influenced by tariffs and trade agreements, but it is also influenced by business sentiment and consumer spending power.  Consumers vote; businesses don't, so election manifestoes usually treat most categories of voters with kid gloves.  The Tories are promising that there will be no increases in income tax, national insurance (the equivalent here is PRSI) or VAT over the next 5 years.  The Labour party is making the same promise, but limited to anyone earning below £80,000 per annum, and other terms and conditions (particularly for married people) apply. 

 

Were either party to secure a majority and then follow through on their election promises, it seems that consumer spending power for most voters would be largely unaffected in the UK.  That’s good news for Irish producers and exporters of consumer goods. 

 

For UK companies though the manifestoes from both parties hold less promise.  Previous Tory plans to continue the downward trajectory of the Corporation Tax rate have apparently been reversed, and the promised rate of 17 per cent will not now materialise – the standard Corporation Tax rate in the UK will remain at 19 per cent.  Under a Labour government, the rate is promised to increase to 26 per cent.  Neither of these proposed rates would be the highest by international standards, and both are still lower than the 28 per cent rate paid by companies in the UK a decade ago. 

 

Perhaps more worrying for UK companies is that the manifestoes of the main parties seem tone-deaf to the challenges of attracting foreign direct investment (FDI).  Although the UK economy dwarfs the Irish economy in size, the importance of inward investment is common to both and our industrial agencies compete with their UK counterparts. 

 

It is tricky to make direct comparisons about FDI between countries.  This is because cross border investment can take many forms and can be channelled in different ways.  For example a US company investing into the UK could make the investment via a European subsidiary, blurring the distinction between EU investment and US investment.  Nevertheless, analysis from the UK’s Office of National Statistics identifies the US as the major source of investment into the UK by some distance, but followed by significant annual investments from Germany, France and the Netherlands.  This broadly mirrors the profile of foreign investors into Ireland (if we omit the UK which itself is a source of investment here).

 

There is a very positive impact of FDI on employment in the UK.  Again according to the Office of National Statistics, despite only 2.0% of UK businesses having any FDI link, they employed 29.8% of UK workers.  That’s 8.5 million jobs.  This also mirrors scale of the impact of FDI on the employment market in this country.

 

It’s hard to see how either party manifesto will advance the cause of foreign investment into the UK.  Larger industry will balk at the new regulatory regime promised by a Corbyn administration and the prospect of “Inclusive Ownership Funds”.  The idea here is that up to 10 per cent of a company will be owned collectively by employees, with dividend payments distributed equally but capped at £500 a year. 

 

The Tory manifesto isn’t a hazard free zone for companies looking to invest in the UK either.  The Tory slogan to Get Brexit Done is not going to resonate with the very many business people who see Brexit as an impediment to, rather than an opportunity for, trade.  Businesses are also aware of the importance of securing existing EU sourced investment in a post Brexit environment.  Spotting this, the Liberal Democrat manifesto is simply titled “Stop Brexit” and promises a “remain bonus” of £50bn though like Labour they too would push up the Corporation Tax rate.

 

The competition for FDI is one which it seems to me none of the UK parties are concerning themselves much with at all.  That’s an extraordinary omission for any political system which has been so dominated by three years of Brexit debate on foreign relations and trade.

 

Dr Brian Keegan is Director of Public Policy with Chartered Accountants Ireland